March 4, 2020 / 3:51 PM / 24 days ago

TREASURIES-U.S. 10-year yield hovers below 1% as coronavirus fears persist

    By Gertrude Chavez-Dreyfuss
    NEW YORK, March 4 (Reuters) - U.S. benchmark Treasury
10-year yields held below 1% on Wednesday, as bond investors
continued to flock to safe-haven assets amid persistent
uncertainty about the economic impact of the rapidly-spreading
coronavirus.
    In its first inter-meeting move since the global financial
crisis in 2008, the Federal Reserve cut interest rates on
Tuesday by half a percentage point in response to the widening
fallout from the virus.
    That has pushed yields on the long end of the curve to
record lows, and sank two-year yields to a nearly four-year
trough.
    "This impact, in terms of the downturn on economic activity,
is probably going to hang around a lot longer than originally
expected," said Dan Heckman, senior fixed income strategist, at
U.S. Bank Wealth Management in Kansas City, Missouri.
    "What the Fed did yesterday ensures that the yield curve
will maintain some degree of steepness. Having a steep yield
curve maintains some level of confidence that ultimately we may
not go into recession, that we're just going to slow down
economically," he added.
    The yield curve continued to steepen on Wednesday, with the
spread between the two-year and 10-year widening to 34.40 basis
points from 29.8 basis points on Tuesday.
    Following the Fed's lead, the Bank of Canada slashed its
benchmark interest rate to 1.25% from 1.75% on Wednesday and
said it was prepared to cut again if needed to support economic
growth.
    The move reinforced expectations that yields around the
world will stay lower for longer.
    In morning trading, U.S. 10-year yields fell to
0.97%, from 1.017% late on Tuesday.
    Yields on U.S. 30-year bonds were at 1.613%,
down from 1.631% on Tuesday. They touched an all-time trough of
1.507% the day before.
    On the short end of the curve, U.S. two-year yields fell to
0.629% from Tuesday's 0.729%. They touched 0.614%,
the lowest in nearly four years.
    Wednesday's data was solid, with the ADP National Employment
Report showing private payrolls rose by 183,000 jobs last month,
compared with a forecast of 170,000 new jobs. Economists polled
by Reuters
    U.S. services sector activity also accelerated to a one-year
high in February, suggesting underlying strength in the economy.
The Institute for Supply Management (ISM) said on Wednesday its
non-manufacturing activity index increased to a reading of 57.3
last month, the highest level since February 2019, from 55.5 in
January.
    "Overall, the ISM release is easily dismissed given the
broader global headwinds and that's exactly what investors have
done; choosing to focus on equities pulling back from their
peaks," said Ian Lyngen, Ian Lyngen, head of U.S. rates
strategy, at BMO Capital Markets in New York.
    
      March 4 Wednesday 10:32AM New York/1532 GMT
                                                      
                                                      
                                                      
                               Price        Current   Net
                                            Yield %   Change
                                                      (bps)
 Three-month bills             0.8          0.815     -0.138
 Six-month bills               0.6925       0.7046    -0.148
 Two-year note                 100-248/256  0.6334    -0.096
 Three-year note               102-28/256   0.6513    -0.091
 Five-year note                101-254/256  0.7176    -0.055
 Seven-year note               101-182/256  0.872     -0.044
 10-year note                  104-228/256  0.9827    -0.034
 30-year bond                  109-48/256   1.612     -0.019
                                                      
   DOLLAR SWAP SPREADS                                
                               Last (bps)   Net       
                                            Change    
                                            (bps)     
 U.S. 2-year dollar swap         4.75        -1.25    
 spread                                               
 U.S. 3-year dollar swap         4.75         0.25    
 spread                                               
 U.S. 5-year dollar swap         6.00         0.25    
 spread                                               
 U.S. 10-year dollar swap       -1.25         1.50    
 spread                                               
 U.S. 30-year dollar swap      -39.75         0.25    
 spread                                               
 
 (Reporting by Gertrude Chavez-Dreyfuss
Editing by Nick Zieminski)
  
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